Housing in California in 2020: A Look Ahead and a Lesson in Try, Try Again

Indisputably, 2019 was an important year for housing in California. As we noted in our prior blog post, Governor Newsom signed legislation creating statewide rent control, preventing discrimination against people paying rent with vouchers, and preventing cities from downzoning in order to inhibit new construction projects. And, according to legislators involved in these efforts, the State wants to keep up this momentum in 2020.

Below are a few of the most important housing issues to watch heading into 2020.

Housing Production Legislation

The Legislature reconvened in January for the second half of its two-year session, and pressure to act on the state’s housing crisis has not subsided. According to a recent Public Policy Institute of California statewide survey, 68% of Californians say housing affordability is a big problem in their part of the State. Therefore, we expect 2020 to bring a number of additional housing production bills.

Senator Scott Weiner’s More HOMES Act (SB 50) was the highest-profile housing bill of the bunch. The bill offered some flexibility to local governments while still requiring significant residential upzoning near major transit stops. For example, rather than automatically upzoning these areas, the bill gave cities two years to develop “local flexibility plans” to zone for the same amount of housing required by SB 50 without increasing vehicle miles travelled. Failing to prepare an Department of Housing and Community Development-approved plan would have triggered SB 50’s default statewide standards, including project waivers from maximum density controls, height limitations, and parking requirements depending on the project’s location.

Controversially, the bill also allowed most California homeowners to convert existing single-family homes into duplexes, triplexes, or fourplexes—even when located within single-family zones—through a streamlined ministerial approval process.

After similar versions were rejected in 2018 and 2019, the reintroduced, revised bill again failed to garner enough votes to pass the Senate. On January 30 the bill received 18 “aye” votes and 15 “no” votes, four short of what was required to pass out of the Senate. However, Senate President Pro Tem Toni Atkins vowed that SB 50’s failure “would not be the end of this story.” And Senator Weiner remains fully committed to advancing a strong housing production bill this year.

Stay tuned for further updates on these efforts.

State Funding for Affordable Housing

Governor Newsom’s 2019-2020 budget allocated $1 billion to help cities build shelters and long-term housing. The Legislative Analyst’s Office estimates a $7 billion surplus for 2020-2021, and there has been significant pressure to spend more money on affordable housing production. While Governor Newsom’s proposed budget asks for $1.4 billion for additional homeless services, it does not directly address production issues.

Senator Jim Beall’s SB 795, introduced last year as SB 5 and vetoed by Governor Newsom, represents one way of promoting affordable housing production. The original bill was drafted to restore some of the revenue lost when the state’s redevelopment agencies were abolished. If the original bill’s language is remains unchanged, it would create a State-level Affordable Housing and Community Development Investment Program to assist cities and other local entities in financing new affordable housing. The Program would be funded by allowing cities to reduce their contributions to Educational Revenue Augmentation Funds in favor of financing affordable housing projects, transit-oriented developments, or other infill projects.

Rent Control and Split Roll on the Ballot and Housing Accountability Act in the Courtroom

Industry members should also expect a series of significant housing-related ballot measures in the November election. First, two years after decisively rejecting expanded statewide rent control, voters could be asked to weigh in on the issue yet again. The AIDS Healthcare Foundation (“AHF”), which sponsored the unsuccessful 2018 effort, has submitted over 1 million signatures supporting a new and similar measure, currently dubbed the Rental Affordability Act.

The measure was submitted despite lawmakers passing a statewide rent cap last session, which set a maximum annual rent increase of 5% plus inflation and included eviction protections for longtime tenants. AHF opposed this legislation on the grounds that it did not go far enough.

Now, the measure allows cities, for the first time since the Costa-Hawkins Rental Housing Act was enacted in 1995, to enact vacancy controls. Specifically, it allows landlords to increase rent on a vacated property by up to 15%, plus whatever rent control increase is allowed by the local jurisdiction, once every three years.

The measure would give cities more latitude to create rent controls for housing built after 1995, but would exempt units less than 15 years old. Having just compromised with the Legislature and Newsom administration on last year’s rent control legislation, industry groups like the California Apartment Association oppose the new measure.

Voters may also be asked to vote on a “split roll” initiative, which would amend Proposition 13 to exclude commercial property from its restrictions on property tax increases.

Finally, industry members should expect a significant clarification of the scope of the Housing Accountability Act (“HAA”) from the courts in 2020. A recent San Mateo County Superior Court order upheld the City of San Mateo’s denial of a housing project on grounds that it was inconsistent with the City’s design guidelines. Rather than stopping there, the court held that charter cities, which cover 58% of the state’s population, are not bound by the HAA under the home rule doctrine. The court also that the HAA constitutes an unlawful delegation of municipal affairs to private parties. The order has been appealed, and the California Attorney General recently intervened in the case.

In all, if Governor Newsom hopes to meet his goal of building 3.5 million homes by 2025, his administration will have to work with the Legislature to further streamline housing approvals and help developers and local governments creatively finance affordable housing. This portends another busy year on housing issues in 2020.

This alert is provided for information purposes only and does not constitute legal advice and is not intended to form an attorney client relationship. Please contact your Sheppard Mullin attorney contact for additional information.

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